As a family law attorney, I advise individuals who plan to marry, are married, or are facing separation from their spouse. As a business law attorney, I provide advice to the business people who plan on starting a business with one or more partners, are involved in a business, or are facing disputes with their partners. These scenarios have much more in common than you may think and in both, the importance of having a plan cannot be overstated. When my help is needed in either capacity, I am reminded of two indispensable quotes:
- “If you fail to plan, you are planning to fail!” - Benjamin Franklin
- “How do you prepare for anything? Plan, Review, and Revise.” - Charma Pipersky
The first quote by Benjamin Franklin imparts the wisdom of having a plan for anything in life as opposed to drifting from situation to situation. The genius of the second quote is the indisputable fact that even if we have the best plan possible at that time and under those circumstances, things change. Therefore, a plan must be reviewed and revised and cannot be reduced to a simple ‘set it and forget it’ frame of mind.
In business partnerships as well as marriage, the relationship may go smoothly when times are good, there is no conflict of opinion, or when there are no financial challenges. It is when a crisis inevitably arises that the flaws in a relationship are exposed and the value of a plan that contemplated problems and provides solutions is realized. It’s at this time when the value of the above quotes pay off and those who have followed the advice are more likely to survive, and even thrive, while those who have failed to plan, or those who have failed to review and revise their plans, find the crisis more damaging. The ladder often describes the former as “lucky” when the real reason for the result is more likely the discipline of planning, reviewing, and revising.
At the risk of sounding unromantic, a marriage, like a business partnership, is also a legal and financial joint venture. Like partners in business, married couples must manage money, make joint decisions, coordinate responsibilities, handle emergencies, and communicate with one another about dozens of day-to-day issues. When you get married or form a business, you create a new legal relationship.
Think of your business plan and partnership agreement as a roadmap to success that provides greater clarity on all aspects of your business and how your partnership will function. The goal of a plan and the partnership agreement is to protect each partner’s investment in the company, detail how the company will be managed, set forth the rights and obligations of the partners, and determine the rules of engagement should a disagreement arise among the parties. A well-planned and well-written partnership agreement will anticipate and reduce the risk of misunderstandings and disputes between the owners and allow the partners to remain focused on growing the business.
- Review: As the business grows and evolves, the partnership agreement should grow and evolve with it. The same careful planning that was put into the original partnership agreement needs to be put into ensuring the agreement continues to provide tailor-made protections for your business. At this point, you will be better equipped to see which parts of your original plan worked well, which need refinement, and you can assure that all relevant obligations of the agreement are being complied with.
- Revise: This is the phase where you can amend your partnership agreement to reflect the growth of your business and the revisions that are needed, for example, the management responsibilities, allocation of work, and method of profit or earning distributions.
In a marriage:
- Plan: Financial planning should be part of any marriage, and in my professional opinion, so should a prenuptial agreement (postnuptial agreement if entered into during a marriage). Now instead of seeing a prenup as a way to simply protect your assets in the unfortunate event of a divorce, consider treating it as a tool to build a long-term financial plan with your partner before entering into marriage. The planning and discussion that should go into the terms of a prenup can be a way for couples to have an open and honest conversation and get on the same page financially.
The conversation and planning that should go into combining your finances may reveal surprising differences, such as saving and investment priorities, the standard of living goals, how you want to live your retirement years, who (if anyone) is expected to be a stay-at-home parent, how to deal with life interruptions and their effect on the family’s financial stability. By having the prenup conversation before the wedding, you have the opportunity to get your financial plans coordinated for today as well as many years to come.
- Review: Financial circumstances and your priorities can change in ways that make the original agreement obsolete or unfair to one party. It will be easier for you to renegotiate the agreement while still married than during the divorce. Also, there may be changes to laws that may have unintended consequences to your agreement, such as the recent change in how tax on alimony payments are dealt with. Finally, your prenuptial or postnuptial agreement, might be too old and outdated for court to honor its terms. Simply put, it is dangerous to sign a prenuptial agreement, set it aside and never think about it again.
- Revise: Based on the change of circumstances, priorities or goals, if any, this is the phase where modifications can be made to your original plan and agreement. Even if changes are not necessary, evidence that your agreement has been regularly reviewed will make it more certain that your agreement would survive a possible challenge if its validity ever challenged at separation.
In business, in marriage, and in life in general, a good plan is essential to success. Marriage and business ventures are entered into with optimism and good intentions. However, disputes among spouses and business partners are all too common. Disagreements between business partners can risk destroying the entire operation, and the lack of a valid prenuptial agreement can make a separation much more complicated than necessary and have unintended financial consequences for years to come. A well planned and drafted agreement that is reviewed regularly, and which is revised as necessary, can protect your interest, greatly reduce disruption and efficiently resolve disputes if or when they arise, saving the you tens or hundreds of thousands of dollars in legal fees later.